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Marketable Securities
6 Months Ended
Jun. 30, 2012
Marketable Securities  
Marketable Securities

NOTE 6. Marketable Securities

 

The Company invests in agency securities, corporate securities, asset-backed securities, treasury securities and other securities. The following is a summary of amounts recorded on the Consolidated Balance Sheet for marketable securities (current and non-current).

   June 30, December 31,
(Millions) 2012 2011
      
U.S. government agency securities  $ 188 $ 119
Foreign government agency securities    3   8
Corporate debt securities    455   413
Commercial paper    254   30
Certificates of deposit/time deposits    36   49
U.S. treasury securities   20  
U.S. municipal securities   17   9
Asset-backed securities:      
 Automobile loan related    453   530
 Credit card related    112   244
 Equipment lease related    56   54
 Other    1   5
Asset-backed securities total    622   833
        
Current marketable securities  $ 1,595 $ 1,461
        
U.S. government agency securities  $ 400 $ 361
Foreign government agency securities    31   15
Corporate debt securities    364   255
U.S. treasury securities    17   34
U.S. municipal securities    24   5
Auction rate securities    4   4
Asset-backed securities:      
 Automobile loan related    159   188
 Credit card related    23   24
 Equipment lease related    9   10
Asset-backed securities total    191   222
        
Non-current marketable securities  $ 1,031 $ 896
        
Total marketable securities  $ 2,626 $ 2,357

Classification of marketable securities as current or non-current is dependent upon management's intended holding period, the security's maturity date and liquidity considerations based on market conditions. If management intends to hold the securities for longer than one year as of the balance sheet date, they are classified as non-current. At June 30, 2012, gross unrealized losses totaled approximately $9 million (pre-tax), while gross unrealized gains totaled approximately $2 million (pre-tax). At December 31, 2011, gross unrealized losses totaled approximately $12 million (pre-tax), while gross unrealized gains totaled approximately $3 million (pre-tax). Gross realized gains and losses on sales or maturities of marketable securities for the first six months of 2012 and 2011 were not material. Cost of securities sold use the first in, first out (FIFO) method. Since these marketable securities are classified as available-for-sale securities, changes in fair value will flow through other comprehensive income, with amounts reclassified out of other comprehensive income into earnings upon sale or “other-than-temporary” impairment.

3M reviews impairments associated with its marketable securities in accordance with the measurement guidance provided by ASC 320, Investments-Debt and Equity Securities, when determining the classification of the impairment as “temporary” or “other-than-temporary”. A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive income component of shareholders' equity. Such an unrealized loss does not reduce net income attributable to 3M for the applicable accounting period because the loss is not viewed as other-than-temporary. The factors evaluated to differentiate between temporary and other-than-temporary include the projected future cash flows, credit ratings actions, and assessment of the credit quality of the underlying collateral, as well as other factors.

The balances at June 30, 2012 for marketable securities by contractual maturity are shown below. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

(Millions) June 30, 2012
   
Due in one year or less  $ 1,154
Due after one year through three years    1,225
Due after three years through five years    241
Due after five years    6
    
Total marketable securities  $ 2,626

3M has a diversified marketable securities portfolio of $2.626 billion as of June 30, 2012. Within this portfolio, current and long-term asset-backed securities (estimated fair value of $813 million) are primarily comprised of interests in automobile loans and credit cards. At June 30, 2012, all asset-backed securities were rated AAA or A-1+ by Standard & Poor's and/or Aaa or P-1 by Moody's.

3M's marketable securities portfolio includes auction rate securities that represent interests in investment grade credit default swaps; however, currently these holdings comprise less than one percent of this portfolio. The estimated fair value of auction rate securities was $4 million as of June 30, 2012 and December 31, 2011. Gross unrealized losses within accumulated other comprehensive income related to auction rate securities totaled $9 million (pre-tax) as of June 30, 2012 and December 31, 2011. As of June 30, 2012, auction rate securities associated with these balances have been in a loss position for more than 12 months. Since the second half of 2007, these auction rate securities failed to auction due to sell orders exceeding buy orders. Liquidity for these auction-rate securities is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually every 7, 28, 35, or 90 days. The funds associated with failed auctions will not be accessible until a successful auction occurs or a buyer is found outside of the auction process. Refer to Note 10 for a table that reconciles the beginning and ending balances of auction rate securities.